Parentis a public listed company acquired 600 million

equity shares #4694

Parentis, a public listed company, acquired 600 million equity shares in Offspring on 1 April
2006. The purchase consideration was made up of:- A share exchange of one share in Parentis
for two shares in Offspring- The issue of $100 10% loan note for every 500 shares acquired;
and- A deferred cash payment of 11 cents per share acquired payable on 1 April 2007.Parentis
has only recorded the issue of the loan notes. The value of each Parentis share at the date of
acquisition was 75 cents and Parentis has a cost of capital of 10% per annum.The statements
of financial position of the two companies at 31 March 2007 are shown below:The following
information is relevant:(i) At the date of acquisition the fair values of Offspring's net assets were
approximately equal to their carrying amounts with the exception of its properties. These
properties had a fair value of $40 million in excess of their carrying amounts which would create
additional depreciation of $2 million in the post-acquisition period to 31 March 2007. The fair
values have not been reflected in Offspring's statement of financial position.(ii) The intellectual
property is a system of encryption designed for internet use. Offspring has been advised that
government legislation (passed since acquisition) has now made this type of encryption illegal.
Offspring will receive $10 million in compensation from the government.(iii) Offspring sold
Parentis goods for $15 million in the post-acquisition period. $5 million of these goods are
included in the inventory of Parentis at 31 March 2007. The profit made by Offspring on these
sales was $6 million. Offspring's trade payable account (in the records of Parentis) of $7 million
does not agree with Parentis's trade receivable account (in the records of Offspring) due to cash
in transit of $4 million paid by Parentis.(iv) Due to the impact of the above legislation, Parentis
has concluded that the consolidated goodwill has been impaired by $27
million.Required:Prepare the consolidated statement of financial position of Parentis as at 31
March 2007.View Solution:
Parentis a public listed company acquired 600 million equity shares

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